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The Abundance Formula

The Abundance Formula

This is essentially the quick guide to the Abundance Formula.

The Poverty Formula

Many people are poor because they follow a very simple financial formula, which we call the Poverty Formula

Income – Expenses = Savings

This means people think of spending and paying others first before paying themselves.  This is why people remain poor.  If one is currently earning P20,000 per month, one thinks he will forever earn P20,000 or more.  Thus he spends P20,000 per month.  If anything is left over, he plans to use it as savings.  But more often than not, people spend the entire P20,000, and sometimes even more.  When they spend more, they go into debt, and begin spending money they have not yet earned.  This is a vicious cycle, and people go deeper into debt.

The Abundance Formula

We teach people to use a different financial formula, which we call the Abundance Formula.

Income – 10% Tithes – 20% Savings/Investment = Expenses

In this formula, we teach people to give 10% of what they earn as tithe, and 20% for savings and investment.  Then spend the remaining 70% on their other expenses.

Details of this formula are beyond the scope of this article ( and Brother Bo Sanchez wrote an entire book aptly titled “The Abundance Formula” to explain this simple formula, enumerating four simple steps that make good people rich ), but essentially it means pay yourself first, and save/invest 20% of your earnings for your future.

The Abundance Formula actually makes life very simple.  If one makes P20,000 per month, he gives 10% tithe (P2,000) to the Lord , saves 20% ( P4,000 ) and allocates P14,000 for expenses.  If one starts at age 25, a monthly investment of P4,000  translates to P48,000,000 (yes, P48 million) at age 65 if invested at a modest12% per year, or P88 million if invested at 14%.

But I am in Debt! How Can I Save When I Am In Debt?

The Abundance Formula works well even when you are currently in debt.  Use the 20% (or more) to retire your debt ( making sure you do not incur more debt ).

How Can I Save 20% ?

Many people say “But I spend 110% of what I make, how can I possibly live on 70% of my income?”

There are some who find it really difficult to make ends meet ( like if you are sending several kids to college, or feeding an extended family). But most people can find savings if they really want to.

Every P1,000 a month savings translates to at least P1M in 20 years.  That is only P33 per day.  Can you save P33 per day?

How much do you spend on softdrinks?
How much do you spend on junk food?
How much do you spend on Starbucks coffee, or C2 Iced Tea?
How much do you spend on short jeepney and tricycle rides?
How much do you spend on cigarrettes?
How much do you spend on cellphone load, lotto tickets?

Can you save a few hundred pesos every few weeks?

How much do you spend eating out?
How much do you spend in the movies?
How much do you spend in the beauty parlors? Spas?

Can you save a few thousand pesos every few months?

How much do you spend on gadgets?
How much do you spend on vacations?

Add up all the savings and if invested properly, each P1,000 can turn into P1,000,000 in 20 years.  For example, if you can save P3,500 per month, that can turn into P3,500,000 in 20 years.

Of course one should enjoy life and fruits of their labor, but just make sure what you spend for enjoyment is within budget in the 70% for expenses and not in the 20% for savings/investment.

Expand Your Means!

It is more important to increase your means than kill your dreams.  If  70% of P20,000 is not enough, do not take from the 20% you use to pay yourself.

The preferred way to savings is to find ways to expand your means and earn more.  Remember 70% of P30,000 is P21,000, which is even more than P20,000.   If you want to spend more, simply earn more.

If you are working for money 8 hours a day, five days a week, you have three options:

  1. work for money for more hours,
  2. work for money for more days, or
  3. make money work for you

Doing (1) or (2) is “easy” but you can only do so much because there are only 24 hours a day, and 7 days a week.  If you want to earn more and be rich, you need to be financially literate.

This will be a topic in a future article.

Attend a FREE Financial Planning and Coaching Seminar in Makati. to get you started with Financial Literacy.